Petfood prices on the rise

The term "recession-proof" is often applied to the pet products market, and it now appears "disaster-resistant" may join the list. Following the biggest petfood recall in history, the North American market has snapped back, with both retail sales ...

The term "recession-proof" is often applied to the pet
products market, and it now appears "disaster-resistant" may
join the list. Following the biggest petfood recall in history,
the North American market has snapped back, with both retail
sales and new product introductions exceeding pre-recall
levels.

But not everything is positive. During the 52 weeks ending
April 20, 2008, sales of dog food in mass-market outlets
tracked by Information Resources Inc. (IRI) - supermarkets,
drugstores and mass merchandisers excluding Wal-Mart - rose
just 2.5%. This is not exactly stellar, even less so given that
poundage declined by the same amount.

With cat food, dollar sales rose 3.2% while volume sales
fell 4.1%. These figures clearly illustrate that dollar sales
gains are coming from higher prices rather than incremental
growth, which has been the case for some time. What may be
surprising is just how quickly and steadily prices have been
going up.

Paying more than ever

Trends in consumer price indexes bear out that US consumers
are paying more for petfood than ever before. According to the
US Bureau of Labor Statistics, the consumer price index for
petfood has risen 23% from 1998 to 2008, with the majority of
this increase in 2003. Though some manufacturers claim they've
been absorbing higher production costs, government data show
the increases have been passed on to consumers almost point by
point, with the producer price index for petfood rising 26%
during the 10 years (Table 1).

With high energy costs and petfood increasingly competing
with human food for ingredients, production costs can be
expected to continue to increase for the foreseeable future.
Add in the ongoing focus on ingredient sourcing and
traceability spurred by the recalls, and one can rest assured
that petfood prices will continue to rise.

Sharp contrasts

For the premium demographics many companies now consider
their base Americans with high household incomes and intense
pets-as-family proclivities all this may not mean much. These
are the pet owners least likely to feel the economic pinch or
cut back on indulging their "kids."

In sharp contrast, a fair number of economically challenged
consumers may drop out of the pet market, at least temporarily.
Already, dozens of US shelters have reported a spike in
consumers' dropping off pets because they can no longer afford
their care.

That leaves all those pet owners in the middle. After the
recalls, some may have switched to higher priced foods, but as
the going gets tougher, many may be considering moderately
priced options.

A prime example is Mars' Goodlife Recipe, launched a few
months before the recalls. The dry dog food and treats had
sales of US$15.3 million during the first two quarters of 2007,
according to IRI. During the 52 weeks ending April 20, 2008,
sales rose 365%.